The Securities and Exchange Commission (SEC) has filed an action against online crypto-lending platform BitConnect and its founder, as well as its top U.S. promoter and his affiliated company, leading to multiple sanctions.
In a release, the regulator alleged that BitConnect founder, Satish Kumbhani, was involved in defrauding investors of US$2 billion “through a global fraudulent and unregistered offering of investments into a program involving digital assets.”
Between early 2017 and January 2018, the SEC said, the defendants listed in the action facilitated the “sale of securities in the form of investments in a ‘Lending Program’ offered by BitConnect.” Through that program, investors deposited funds and were promised “exorbitantly high returns” through the use of alleged proprietary trading software, the SEC added.
Rather than invest clients’ money, the SEC said, “BitConnect and Kumbhani siphoned investors’ funds off for their own benefit by transferring those funds to digital wallet addresses controlled by them, their top promoter in the U.S., defendant Glenn Arcaro, and others” — promoters around the globe were allegedly rewarded through commissions that were mostly “concealed from investors.”
The SEC has charged the defendants with violating the anti-fraud and registration provisions of the federal securities laws, and is seeking injunctive relief, disgorgement with interest and civil penalties.
The regulator noted in its release that it has previously reached settlements with individuals charged in a related action for promoting the BitConnect offering, and that “the Department of Justice [on Wednesday] announced that Arcaro has pleaded guilty to criminal charges.”
“We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space,” said Lara Shalov Mehraban, associate regional director of the SEC’s New York Regional Office, in the release.
Through the Office of Investor Education and Advocacy, and the enforcement division’s Retail Strategy Task Force, the regulator issued a Sept. 1 alert that warns against digital asset scams.